The changing time-value of money could leave some investors very exposed. The changing geopolitical landscape means national security now trumps economic progress in Xi’s China. Small changes regarding the renminbi could increase its reserve currency status. Richer means happier but only up to a certain point. Don’t suffer from regret but make it work for you.
QUOTE OF THE WEEK
ARTICLE OF THE WEEK
Andreas Steno Larsen, 3 reasons why everyone, Zuckerberg, me, and their dogs turn into idiots when rates are 0%
(Substack, 30 October 2022)
A provocative and funny argument about why previous zero interest rate policies turned some people into financial illiterates. In short: as soon as the traded “time value of money” – i.e., future nominal bond yields – are zero or even negative, “right about every project can be justified, no matter how idiotic it is.” If the time value of money is zero or even negative, “even a forecasted rapidly growing cash-flow from selling Rocketship trips to Mars in 2340 looks compelling.” This benefitted enormously the amount of “zombie-companies” being IPO-ed during 2020/2021. With interest rates rising, the tide is now turning, and we are going to see who was swimming naked (can be read free once – 6-7 min).
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Andrew Sheng and Xiao Geng, China Girds for Tough Times
(Project Syndicate, 2 November 2022)
The two Hong Kong University scholars explain why China carries out its most important reforms only in times of crisis. As President Xi Jinping has argued during the recent CCP Congress, the Party and the Nation must prepare for tougher times ahead amid unprecedented external and internal challenges. From now on, “Xi will plan a dramatic shift in Chinese policy, making improved national security, rather than economic development, the primary goal of his administration” (metered paywall that may require prior registration – reads in 7-8 min).
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Barry Eichengreen and al., The renminbi’s unconventional route to reserve currency status
(CEPR, 31 October 2022)
In contrast to the prevailing view, these economists argues that the renminbi can play a more important role in the future, even in the absence of full financial liberalisation. Currently, the share of China’s renminbi in global reserve portfolios is around 3% (compared to 60% for the US dollar and 20% for the euro), but the process of moving to reserve currency status would involve trade invoicing and settlements, central bank swap lines, and offshore renminbi markets. This would not lead to the renminbi overtaking the dollar, but rather to a multipolar world of key currencies, including the dollar, euro, and renminbi (free access – 7-9 min).
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Coco Khan, How much money makes you happy? We ask an expert
(The Guardian, 28 October 2022)
This is a short interview with Jan-Emmanuel De Neve – the director at the University of Oxford Wellbeing Research Centre – who explains what the data says about money and happiness. There is a link of course (as anyone without money will tell you), but it’s much stronger at the bottom of the pay scale. As we move up, there are diminishing returns – a flattening of the curve. Researchers can’t agree on the point at which happiness no longer goes up. The few datasets capturing very rich people suggest a full flattening of the curve, and even point downwards (free access – reads in 4-5 min).
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Jelena Kecmanovic, How to deal with regret
(Psyche, 2 November 2022)
The clinical psychologist explains why in a world of choices, it’s impossible to avoid regret; but as unpleasant as it is, we can make it bearable, even inspirational. A piece packed with interesting insights, some of them practical and even actionable: (1) “Reframe your experience of regret. Consider ways you might be exaggerating the goodness of the path not taken or the inferiority of the path you’re on.” (2) “Use regret to clarify what you value. The focus of your regret can tell you what matters most to you – and suggest ways to live in accordance with it in the future.” Read on! (free access – around 15 min).
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